How to Choose Company Cars in the UK

Summary

• Lower CO2 means lower tax: Electric and hybrid cars attract the smallest Benefit in Kind (BIK) tax bills.
• Consider total cost of ownership: Not just the price, but fuel, insurance, servicing, and depreciation.
• Match the car to the job: Sales reps need comfort for long drives. Site workers need something tough. See our company car tax guide.

Getting company cars right saves your business money and keeps your team happy. Getting it wrong wastes thousands every year.

Here is a practical guide to choosing the best company cars for your UK business.

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Understanding Benefit in Kind Tax

When an employee gets a company car, they pay Benefit in Kind (BIK) tax. The amount depends on:

• The car's CO2 emissions: Lower emissions mean lower tax.
• The car's list price: More expensive cars attract higher BIK.
• The employee's tax rate: Higher-rate taxpayers pay more.

Electric cars currently have the lowest BIK rate at just 2%. This makes them very attractive as company cars.

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Best Types of Company Cars

Use Case	Best Car Type	Why
Sales / client visits	Executive saloon or SUV	Comfort, image, long-range ability
City driving	Small electric car	Low running costs, zero BIK, easy to park
Site visits / trades	Van or pickup	Tough, practical, good payload
Senior management	Premium EV or hybrid	Low tax, high spec, professional image
Pool car	Reliable hatchback	Cheap to run, easy to drive, low insurance

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Total Cost of Ownership

The purchase price is just the start. Consider all running costs:

• Fuel or charging: EVs cost a fraction of petrol or diesel to run.
• Insurance: Check insurance groups before choosing. Some cars cost far more to insure.
• Servicing and maintenance: EVs have fewer moving parts and need less servicing.
• Depreciation: Some cars hold value better than others. This affects your total spend over the lease period.
• Road tax: Zero for electric vehicles.

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Lease vs Buy

Most businesses lease company cars rather than buy them outright. Leasing offers:

• Fixed monthly payments that are easy to budget for.
• No worries about depreciation.
• New cars every 2-4 years.
• Maintenance packages available.

Buying makes sense if you plan to keep vehicles for a long time or have the cash available.

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Going Electric with Your Fleet

More UK businesses are switching to electric company cars. The benefits include:

• 2% BIK rate (compared to 20-37% for petrol and diesel).
• 100% first-year capital allowance for businesses.
• Zero road tax.
• Lower fuel and maintenance costs.

Read our electric fleet guide for detailed advice on making the switch.

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Tips for Company Car Policies

1. Set a maximum CO2 limit to keep BIK costs down.
2. Offer a car allowance as an alternative for employees who prefer their own vehicle.
3. Include a mileage cap in lease agreements to avoid penalty charges.
4. Require employees to maintain and service the car regularly.
5. Review your policy each year as tax rates and EV options change.

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Final Thoughts

Choosing the right company cars is one of the biggest decisions a business can make. Focus on low emissions, total cost of ownership, and matching vehicles to roles. Your accountant and your employees will thank you.

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